Muy Caliente: Million Dollar Payment In Univision Payola Probe

Posted on July 27, 2010 by Frank Montero

 Not quite two years ago, we called our readers’ attention to developments on the sponsorship ID front, Spanish-style. What got our attention back then was the fact that the Enforcement Bureau had sent out a number of Letters of Inquiry (LOIs) to a number of Spanish language stations which allegedly had dealings with Univision Music Group (UMG), an entity controlled by Univision Communications, Inc. (UCI). The back-story: a former UMG executive had spread a boatload of specific factual allegations about specific payola-like conduct in a lawsuit filed out in California. Word of those allegations – along with a list of stations allegedly involved in payola-like conduct – had reached the FCC, and the Commission was interested in checking things out for itself.

We concluded that report by pointing out that we didn’t know how long this regulatory telenovela would take to play out, or what the final upshot would be.

We now know.

Univision Radio, Inc. has entered into a Consent Decree with the Enforcement Bureau. No admissions of wrong-doing, mind you, but Univision Radio does agree to make a “voluntary” contribution to the Feds to the tune of $1,000,000. Plus, it agrees to an extensive set of “Compliance Plans” and “Business Reforms” designed to discourage sponsorship ID violations.

URI gets something in return.

The Enforcement Bureau has agreed not to consider any of the alleged messiness in any regulatory context. In other words, no matter how bad the misconduct may have been – and, again, Univision Radio has admitted to no misconduct at all – Univision need not worry about it as far as the FCC is concerned.

Meanwhile, out on the Left Coast, Univision Services, Inc. (the successor-in-interest to UMG) has copped a plea to criminal mail fraud in connection with a scheme “to defraud radio stations”. The fraud involved payments by UMG to various station employees in return for airplay of UMG music; the stations were defrauded because the under-the-table payments meant that the stations could not themselves get those payments in return for airplay which would, theoretically, have been the subject of proper IDs.

While the U.S. Attorney obviously had extensive, compelling evidence of UMG’s guilt, the plea documents make clear that the misconduct was limited to UMG and apparently did not infect the remainder of the extensive UCI operation. According to the plea agreement, “the government’s investigation has not discovered evidence that any officers, directors, or employees of UCI . . . were aware or had reason to be aware of the illegal conduct occurring at UMG.”

So let’s get this straight. Executives and employees of UMG – which is not an FCC licensee and is technically no longer in existence – admitted to making payments in the hope of receiving airplay. And even though there’s apparently no evidence linking that misconduct to others in the Univision organization, it’s still worth $1,000,000 to buy an Invincibility Cloak protecting Univision interests from any further regulatory unpleasantness potentially arising from that misconduct.

As strange as all this sounds, the deal makes sense. Putting an absolute lid on this problem before it metastasizes has considerable value. Since the available evidence of misconduct somewhere in the Univision operation (i.e., chez UMG, in particular) was, it seems, overwhelming, it was probably just a matter of time before petitioners, objectors, and other unfriendlies would start to wield that evidence against Univision’s licenses. As a matter of self-preservation, better to plunk some cash down now, get your immunity, and move on.

It remains to be seen whether the FCC will pursue this matter further against any non-Univision stations whose call signs may have popped up in the investigation. Recall that UMG, the admitted culprit, was accused of spreading pay-for-play cash around a bunch of non-Univision stations. Neither the plea agreement nor the consent decree directly absolves or condemns any other stations (although the plea deal does indicate that the UMG payola scheme was designed to keep other station owners in the dark). But since the matter is still pending at the FCC, those other stations that received LOIs will have to wait and see if this is the end of the matter.
Tags: , , , , , , , , ,

Dear Madame Speaker . . .

Posted on May 18, 2009 by Frank Montero

Last week, I delivered to House Speaker Nancy Pelosi a letter urging her to look into the impact on minority broadcasters of the Performance Rights Act (PRA) pending before Congress. I signed the letter as a Director of the Spanish Broadcasters Association and Washington counsel to the Puerto Rico Broadcasters Association. Co-signers included David Honig, Executive Director of the Minority Media and Telecommunications Council, and Barbara Arnwine, Executive Director of the Lawyers' Committee for Civil Rights Under Law.  

Two weeks ago I moderated a panel of Spanish language radio broadcasters from across the country who gathered on Capitol Hill top brief Congressional staffers on the detrimental effects of such legislation.  If passed into law, the PRA would impose hundreds of millions of new fees on local radio stations for music aired free to listeners. Fifty percent of the new fee would go directly to the record label companies, three out of four of which reside outside the United States.

The bill was approved by the House Judiciary Committee last week, over the objections of various minority groups that wanted a hearing on the potential effects of the bill.  As we said in our letter to Speaker Pelosi, the PRA "would disproportionately harm present and future minority radio broadcasters and their listening communities" and could bankrupt as many as one-third of all minority-owned radio stations.  Another point we make in the letter is that there has been no examination of whether radio should be compensated for the promotional value of their airplay; as a result, the PRA “is not ripe for floor consideration”.  

While the bill is not, by any means, a uniquely minority-focused issue, it is clear that many minority owned stations, which frequently struggle in a healthy economy, and are barely surviving in the economic downturn. They could be snuffed out entirely by the imposition of an additional performance fee. As Amador Bustos of Bustos Media noted during the Capitol Hill briefing I moderated, "The performance tax would be the added and final nail in the coffin for these small broadcasters like ours, and I think that it is just absolutely ludicrous that the record companies are trying to sort of bite the hand that feeds them." The encouraging news is that while our letter was making its way to the Speaker’s desk, additional lawmakers threw their support behind a bipartisan resolution opposing "any new performance fee, tax, royalty, or other charge" on local radio stations.

Tags: , , , ,

Radio Reps Rip Proposed Performance Rights Royalties

Posted on May 6, 2009 by Frank Montero

Spanish-language broadcasters bring the fight to Capitol Hill.

“It’s like throwing a surprise party for a friend, and at the end of the night your friend charges you for an appearance fee.”

That's how Spanish Broadcasting System VP/GM Frank Flores described the push by record labels to impose a performance fee on radio stations. Flores’s comparison, which was a reference to the roughly $2 billion in music sales that the Free Radio Alliance claims is earned by the record industry as a result of the free airplay of their songs on commercial radio, was made during a May 5 panel discussion by leading Spanish-language radio broadcasters, which I moderated. The broadcasters gathered on Capitol Hill to brief Congressional staffers on the potential impact of a performance royalty on their stations. Flores went on to say that "we have worked real hard with the record labels and the artists.  And to be honest with you, a lot of these artists wouldn't be where they are if it wasn't for these radio stations."

Univision Radio's top morning show host, Eddie "Piolín" Sotelo, and ten other Spanish-language radio broadcasters told a room of Congressional staffers that a new performance tax on local radio stations could mean bankruptcy and more job losses for many Hispanic stations. “The performance tax would be the added and final nail in the coffin for these small broadcasters like ours, and I think that it is just absolutely ludicrous that the record companies are trying to sort of bite the hand that feeds them," Amador Bustos of Bustos Media told the audience.

Border Media's Miguel Villarreal noted the potential for more layoffs in the radio business. After the panel discussion, the broadcasters walked the halls of Congress through the afternoon, meeting with members of the Congressional Hispanic Caucus. 

The event was organized by the Free Radio Alliance, which opposes passage of HR 848, the bill which would impose a performance fee on radio stations that air recorded music. Under the terms of the bill, 50% of the royalties would go directly to the recording labels. After the panel discussion, the broadcasters met with members of the Congressional Hispanic Caucus throughout the afternoon. According to one broadcaster, the broadcasters were able to obtain additional support in opposition to the bill and in favor of the Local Radio Freedom Act, a non-binding resolution opposing the performance fee.

Tags: , , , ,

Time For A New Spin On "Pay For Play"

Posted on May 5, 2009 by Peter Tannenwald

I think broadcasters have let the record companies put them on the defensive by establishing a one-sided framework for the public discussion of the performance royalty issue. And that may be why broadcasters seem to be having trouble in the struggle with record companies over that issue.  Maybe it’s time to change that framework.

At the NABOB annual awards dinner a couple of months ago, I listened to NABOB President Jim Winston bemoan the burden that would be placed on struggling minority station owners if they had to pay the “performance royalties” being touted by the record industry. I thought to myself that the performance royalty debate has been in favor of recording artists, because the record companies have managed to cast their side as poor suffering recording artists who have supposedly been victimized by a freeloading broadcasting industry.  Artists have worked hard to create these recordings – as the argument generally goes – so why should they have to let their work be used for free by fat-cat broadcasters?

That approach, of course, misses the other side of the debate: the undeniable truth that airplay provides artists with valuable, if not vital, exposure to vast audiences, exposure that helps those artists sell records (pardon me – I mean CDs and downloads), fill concert seats, move merchandise, and establish the public images which are so crucial to their popular success. You will notice that in most music awards shows, artists give an appreciative shout-out to the radio industry in their acceptance speeches.

Broadcasters have historically provided exposure for free, just as the artists have made their recordings available to broadcasters for free. That quid pro quo arrangement has served everybody – artists, broadcasters and the listening public – well for decades. But if artists now want to change the deal by charging for the use of their recordings, that is a two-way street. Why not let broadcasters ask artists to pay for the exposure they get on the radio?

Well, how are we going to do that? Isn’t that illegal “payola” that can get you jail time? Not so, if you do it right, with proper disclosure. The trick is to fix the disclosure rule so that it does not stand as a barrier but rather can be complied with reasonably and practically.

Somewhere over the last 50 years, the term “pay for play” seems to have become synonymous with “payola”, which in turn is associated with Fraud and Deception and Bad Things (even though I lived in New York as a teen-ager and loved listening to Alan Freed, the disc jockey who gave rock’n’roll its name before becoming the disgraced poster boy for payola).

But “pay for play” is not in and by itself improper or illegal. After all, isn’t conventional advertising payment for air time? Paying for play is perfectly legal, as long as appropriate sponsorship identification is provided. (Sponsorship ID was the “gotcha” that caught Freed and of the other big-time jocks.) So as long as a broadcaster provides appropriate sponsorship ID for playing songs, why not develop a rate card for music and let artists know what it will cost to get their songs on the air?

Now we would have an approach that would permit standard marketplace forces to operate. Each side would have something that the other side wanted, and they would negotiate who pays whom for what.

In some ways, that arrangement would be similar to the “retransmission consent” alternative in the cable television carriage arena. By allowing cable operators and television licensees to negotiate carriage terms, Congress allowed those parties to determine the value of carriage. Historically, cable operators were thought to have the upper hand in the Cable/TV relationship – hence the need for “must-carry” legislation – but in recent years, the broadcasters, as owners of content that is in high demand, have taken control, and the marketplace has demonstrated that, in many cases, cable needs TV stations as much as (or more than) the stations need cable. As a result, many TV stations have developed retransmission consent into a significant revenue stream.

The radio/performance royalty situation is a bit trickier. Recording companies have been allowed to consolidate their rights through SoundExchange, a monopoly which may be administratively convenient but (like any monopoly) is plainly anti-competitive. So if performance royalties are imposed, SoundExchange will be the single 800-pound gorilla with which that all broadcasters will have to deal.

But the existence of Sound Exchange would not prevent individual broadcasters from formulating rates for putting music on the air. They could be paid by individual record companies, who of course would have to include the right to play the music, thereby bypassing and leaving Sound Exchange as the place to go for a blanket license for whatever music is left over.

Since the law already allows pay-for-play with adequate disclosure, the major barrier that broadcasters would face is developing a means of identifying the sponsors that is both legally sufficient and realistic. Some (though not all) lawyers think that the present law requires disclosure of payment every time a paid musical selection is played. Broadcasters may want to petition the FCC to clarify that the law imposes no such requirement and that it is sufficient for stations to make, say, a general announcement four times a day relative to music sponsorship. (Think: “Dear listeners: To keep the FCC happy, and to comply with a tangle of stressful laws, we want you to know that we have been paid to play the music you hear today. Here are the record companies that paid us….”) The public would be told who is paying, and broadcasters would get a fair chance to counter the royalty demands of Sound Exchange with corresponding demands of their own.

If necessary, Congress might be asked to break SoundExchange’s monopoly, to allow more options for negotiations between artists and radio licensees short of separate negotiations for each recording. Some rights aggregation could continue, to avoid administrative chaos, but the ultimate goal would be to achieve a more competitive marketplace setting.

A free marketplace may have some disadvantages. The best artists will presumably be able to charge stations for playing their music, while lesser-known artists may have to pay for airtime. Royalty rates may turn out to be prohibitively high for many broadcasters, particularly the smaller ones. It is not difficult to envision a possible scenario in which only the wealthiest radio broadcasters could play the most popular music, lesser-known artists have to pay for exposure while their better known counterparts rake in cash, and small radio stations have to get creative to stay in business. It could be rough sledding for many on both sides, particularly in the early rounds. I have no desire to disadvantage small broadcasters and would support some regulatory intervention to ensure to ensure that they are not streamrollered.

Still, if the broadcast industry sits back and lets the record companies limit the debate to the narrow question of whether performers should be paid for their work, they are looking for a chance to get hosed. Broadcasters have significant economic muscle which can and should be flexed, letting the artists and recording companies know that upsetting their longstanding relationship with broadcasters may backfire. They should go to the FCC and Congress and demand that legal barriers to free and open marketplace negotiation be removed rather than having lawmakers decide which way the cash flows. Fix the sponsorship identification rule so that it becomes practical to comply with it, and then let the fur fly. TV has a free marketplace for retransmission consent. Why not radio as well?

Once the playing field is leveled, so that legal barriers like the details of the sponsorship rule do not interfere, maybe lawmakers who have jumped on the artist/record companies’ “fairness” bandwagon will recognize that that bandwagon is all about money, like so much else in the business world, rather than about “fairness”. And maybe there is something to be said for retaining the status quo.
Tags: , , , , ,

Muy Caliente: Payola Probe Turns Up Heat On Spanish Radio

Posted on October 23, 2008 by Frank Montero

If you thought that the departure of Elliott Spitzer from the public scene might have put out the FCC’s fire for enforcement of the payola rules, think again. That fire is still blazing. In recent days the Enforcement Bureau has sent out letters of inquiry to a number of Spanish-language radio stations demanding responses concerning allegations of payola.

The claims arise from a lawsuit filed in Los Angeles two years ago. The plaintiff there, one Daniel Mireles, claims that he was wrongfully discharged from his position as Vice President of Promotions at Univision Music. (As always, the pivotal role of the “disgruntled former employee” should never be underestimated.) According to his complaint, Mireles was instructed by management-level executives of Univision and Fonovisa (a record label owned by Univision) to make “cash payments to the program directors and others at radio stations in order to increase the airplay of Fonovisa’s records”. While Mireles alleges that he resisted those instructions initially (apparently he had been involved in a payola investigation in the 1990s and was understandably gun-shy about going through the meat grinder again), he acknowledges that, between February-June, 2006, he was given some $720,000 to pay to “individuals at radio stations”. The goal was apparently to “get Fonovisa’s records played more frequently on the radio”.

Mireles claims that, in drawing up his list of “individuals at radio stations”, he spoke with people at “approximately fifty or more” stations. He allegedly made deals to make payments ranging from $3,000-$10,000 per month.

The complaint does not identify any stations or station personnel. But it appears that, in the two years since the complaint was filed, some names and call signs have surfaced in the lawsuit. More importantly, it looks like those names and calls have found their way to the Commission. The Enforcement Bureau’s inquiry letter to at least one station states that that station “is specifically mentioned in the [Mireles] lawsuit as having participated in the payola scheme”.

The Bureau’s letter asks standard questions relating to charges of payola as well as questions concerning, for example: (1) the station’s relationship with, among others, Univision Music Group, and (2) the station’s own internal policies and practices relating to awareness of and compliance with the sponsorhip ID rules. The letter also requires that the licensee turn over any responsive documents it might have in its files.

Of course, regardless of what may or may not have surfaced in Mireles’s litigation, at present it appears that all we have on the table are allegations, pure and simple. As far as we can tell, Mireles’s case has not to date generated any findings of misconduct by any radio station or station personnel and, of course, much more than mere allegations is needed to justify the imposition of any penalty.

It’s not clear where this is going or how long it will play out. Just last year, the Commission shook a grand total of about $10 million out of Clear Channel, Entercom and CBS in “voluntary contributions” arising from the Spitzer-triggered payola inquiries launched a year or two earlier by the Commission. Whether the FCC will have similar luck this time around remains to be seen.
Tags: , , , ,